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BANK OF PHILIPPINE ISLANDS v. SPS. REYNALDO

FACTS:

The Bank of the Philippine Islands (BPI) filed a complaint for replevin and damages against the respondents, spouses Reynaldo and Victoria Royeca, seeking the delivery of a motor vehicle or payment of the outstanding balance. The respondents executed a promissory note and a chattel mortgage in favor of Toyota Shaw, Inc., which was later assigned to Far East Bank and Trust Company (FEBTC). FEBTC claimed that the respondents failed to make four monthly installment payments and demanded payment. The respondents argued that they had already paid their obligation to FEBTC.

During the trial, it was established that the respondents had delivered postdated checks to FEBTC, two of which were dishonored. The Metropolitan Trial Court (MeTC) dismissed the case and granted the respondents' counterclaim for damages. The Regional Trial Court (RTC) reversed the MeTC decision and ordered the respondents to pay the amount claimed by BPI. However, the Court of Appeals (CA) set aside the RTC decision and reinstated the MeTC decision.

The key issues in the case include whether the respondents had proven full payment of their obligation, whether the tender of checks constitutes payment, and whether the respondents are entitled to damages and attorney's fees. BPI argues that the respondents did not sufficiently prove payment since the delivery of checks does not constitute payment under the law and existing jurisprudence. On the other hand, the respondents argue that they have established payment and should not be held liable to pay the obligation again unless BPI can prove that the checks were dishonored. In civil cases, the burden of proof lies with the party asserting the affirmative of an issue.

ISSUES:

  1. Whether or not respondents were able to prove full payment of their obligation as one of their affirmative defenses.

  2. Whether or not tender of checks constitutes payment.

  3. Whether or not respondents are entitled to moral and exemplary damages and attorney's fees.

RULING:

  1. No, respondents did not sufficiently prove full payment since the mere delivery of checks did not constitute full payment. They failed to present proof that the checks were encashed.

  2. No, the tender of checks does not constitute payment. Payment must be made in legal tender, and a check is not legal tender and cannot constitute a valid tender of payment.

  3. No, respondents are not entitled to moral and exemplary damages and attorney's fees. The Court reinstated the RTC's decision but modified the penalty charges/interest rate.

PRINCIPLES:

  • Burden of Proof in Civil Cases The party asserting the affirmative of an issue has the burden of proof. In claims of payment, the debtor must prove that the obligation has been discharged.

  • Legal Tender Payment must be made in legal tender. A check is not considered legal tender and does not constitute payment unless it is encashed.

  • Equitable Reduction of Penalties Courts may reduce stipulated penalties if they are found to be iniquitous, unconscionable, or if the principal obligation has been partly or irregularly complied with.

  • Reasonable Banking Practice Banks have an implied duty to immediately return dishonored checks to the debtor and demand their replacement or equivalent cash payment to avoid causing prejudice to the drawer.